Public futility? MLSs should focus on broker needs, not fear government regulation

In a post last week, my buddy Rob Hahn speculated about the likelihood of MLS being regulated by the government as a public utility. He and I had had an exchange of tweets during sessions at the CMLS2013 conference on the subject. I think his worries are overblown. After reading his blog post, I still think so. I thought I’d respond here, partly because Rob and I will share the podium at a client’s strat planning later this month.

Rob’s central point:

Plainly put, what I fear is that on the current path [MLS’s focusing on consumers], the MLS is extremely vulnerable to being classified as a public utility and being regulated directly by the government. Those MLS’s that are super-excited about becoming the trusted source for data to consumers — including CMLS, which is pushing its SourceMLS program — should pause and consider what it is that they’re wishing for.

Though I agree with Rob’s ultimate conclusion, that MLSs may be better suited to be B2B transactional communities than consumer-focused media companies, I think his post does not make the case that MLSs are lately skewing in the latter direction — or that the government would be more interested in regulating MLSs if they did so.

First, as evidence of what Rob describes as “this focus on consumers by the MLS,” he notes efforts by CoreLogic and RPR to use MLS data to create data analytics in the real estate vertical; and CMLS’s SourceMLS program, which is designed to allow listings web sites to make assertions to consumers like this: “the real estate property information you are viewing has been supplied directly from the multiple listing service (MLS).” Neither of these activities represents a watershed change in direction for MLSs, and discussions about these types of activities have been going on at CMLS at least since Bob Hale started urging everyone to consider an MLS consumer-facing website—I think that was back in 1984 or ’85, about the time Al Gore invented the Internet. (Funny that Rob didn’t mention that consumer-focussediest MLS, HAR.)

Regulation of MLSs by the government has to come either from legislation or agency oversight, which itself has to be tracked back to some kind of legislation. There’s no evidence that anyone has seriously considered that with regard to MLSs, and MLSs are not much like the things that have been subject to such regulation.

For example, Rob cites an opening comment from Rep. Oxley at a hearing in 2006, who never said anything about nationalizing MLSs. The calls for a public utility came from the Consumer Federation of America; a call for regulation which even the CFA itself has not reiterated, not even after the collapse of the market in ’07-’08. This may make sense, because these hearings happened during the height of the VOW controversy, in which it appeared to some that NAR and its affiliated MLSs were trying to keep listing data fromconsumers. Efforts by MLSs to get more reliable listing data in front of consumers are unlikely to trigger the same complaints from the same folks.

Rob also quoted a paragraph from Wall Street And The Financial Crisis: Anatomy of a Financial Collapse,the report of the Senate Permanent Subcommittee on Investigations on the financial crises as support for a claim that legislators are on the hunt for more listing data. He should have noted that these two little paragraphs appear in a report of 600+ pages. But more importantly, if you read the quote in context, you can see that it refers to a problem that all credit rating agencies and lenders faced: When an economy undergoes a structural change, analytics to predict consumer behavior based on the past (old economic situation) fail to work for the future (new economic situation). Mortgage banks did indeed face a challenge predicting consumer behavior when the cultural stance that you should “pay the mortgage first” shifted—but predictive analytics based on past behavior could not foresee that. This was not a reference to listing information or even credit reporting information, but to information that did not—and in fact, could not—exist.

Rob then notes that the CFPB has regulated the larger credit bureaus. It’s hard to see, however, how this supports his arguments about MLS consumer focus being dangerous. After all, the credit bureaus are the epitome of B2B; they deal with the consumer only grudgingly and to avoid further regulation. What’s more, despite being stalwart B2B enterprises, the bureaus (and scoring agencies like Fair Isaac) are ripe for regulation because they provide data at a critical juncture in the credit underwriting process and are subject to a legislative regulatory regime in the form of the Fair Credit Report Act. Listing data? Not so much.

Given that the pro-regulatory comments were made seven years ago, before the collapse of the real estate market, and that the topic of regulating MLSs did not come up during discussions surrounding the creation of CFPB, there is apparently no stomach on Capitol Hill for extending government regulation and likely none at the CFPB. In fact, recent developments to get MLS data into analytics in the real estate vertical—efforts of CoreLogic, RPR, and now groups like Realty Alliance and others—the very types of activities Rob was concerned about—are likely to improve the quality of credit and underwriting decisions without the need for regulating MLSs.

It’s also hard to imagine how the CFPB would manage more than 800 MLSs. (Note that they chose to regulate only the larger credit bureaus.) The alternative might be to create a nationalized real estate exchange, but that would require Congressional mandate, and I doubt that is forthcoming.

Finally, even if MLSs were regulated a la SEC regulating markets or CFPB regulating mortgage banks and credit bureaus, that hardly makes either of those industries a “public utility,” at least as most folks understand that term. Last I checked, mortgage banks and credit bureaus were functioning quite profitably under the burden of regulation that they face.

I still think Rob’s point is good, but his argument calls on a Chicken-Little-style fear rationale rather than just sound business reasoning. As we saw in the broker session on the last day of CMLS (which, in fairness, happened after Rob’s post), MLSs need to be more concerned about being “broker focused” for reasons quite apart from the government.

Im pioneering MLS in the UK. It's a hard path here as unlike the RETS (near variation) feeds the UK feed schema for delivery of agents data from software to portals was designed to not have the needed 5-6 sharing fields in its strcture by corporate UK agencies to stop the small guys sharing cross software their listings. But as portals Rightmove and Zoopla charge around £1,000 each (2x $1,600

Way to go Brian, once again a very interesting and timely mindbender. Although I am now on the other side of the business being the Broker of a large firm, I think I understand the dynamics of this conundrum. It is interesting to recount the many changes to MLS rules, some generated by necessity, others by convenience. I am a firm believer that the MLS serves as a vital source of